On 23 September 2022, the new Chancellor, Kwasi Kwarteng, unveiled the Growth Plan 2022 detailing the UK government’s set of economic policies aimed at, as the name suggests, boosting economic growth in the UK by improving competition and improving living standards by allowing people to retain more income. Much has been said in recent days on the merits and dangers of the plan and whilst we have seen an immediate impact on the value of the pound, it remains to be seen whether in the longer term the plan meets its aims and supports the country in navigating the likely impending recession. In the meantime, we summarise below the key elements of the plan from a UK employment perspective:
- National Insurance cuts: On 6 April 2022, national insurance contributions (NICs) were increased by 1.25 percentage points, with a plan that this would make way for a new health and social care levy at the same level from April 2023. These have now both been scrapped. The NIC increase will be reversed from November 2022 and the health and social care levy will no longer be introduced next year. This is intended to make it cheaper for employers to employ staff, and allow more workers to keep more of what they earn.
- Income tax cuts: The basic rate of income tax will reduce by 1 percentage point, from 20% to 19%, from April 2023, a year earlier than planned, and the highest income tax band of 45% for income over £150,000 is being abolished, again from April 2023. As with the NIC changes, this is intended to enable workers to retain more of their earnings.It is also hoped that the abolition of the top income tax band will attract more high earning talent to the UK.
- Banker bonuses: A cap on banker’s bonuses was introduced by the EU following the 2008 financial crisis as it was believed that unlimited bonuses encouraged high-risk taking behaviour, and that a cap would limit the behaviour, which resulted in the crash. However, the cap came in for criticism for pushing up base salaries and bank’s fixed costs without allowing for adjustment for financial performance. Following Brexit, and the UK’s freedom to depart from the EU rules, that cap (of up to 2 times fixed salary) is now being removed. The thinking is that without the cap, the UK can be more competitive globally, being able to align pay practices with other markets, promoting UK economic growth, and to allow the UK to attract and retain talent in the UK.